JPY: Supported by repatriation flows - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that this week’s strengthening of the yen coincides with the August coupon payment from the US Treasury and may well have played a role in lifting demand for the yen.

Key Quotes

“One decision Japanese investors must make when coupon payments are made is whether to reinvest or repatriate back into yen. Given the current surge in US LIBOR ahead of the Money Market Fund regulation changes on 14th October, the cost of hedging new investment in US Treasury bonds is that much higher and this we believe may have resulted in a greater appetite for repatriating these coupon payments than would otherwise have been the case.

While this factor may well be influencing price action now, our belief is that the influence is always very brief. We are often asked about the “seasonal bias” of yen strength in August given this coupon payment takes place in generally quiet illiquid trading conditions. However, there is no evidence of a seasonal bias over the last decade. In that last ten years, USD/JPY has risen in five Augusts and declined in five Augusts.”